Who are the housebuilders fooling by refusing to cut prices?
There is a small oasis in the housing market where prices have not fallen. New homes. While other property prices plunge, builders refuse to cut theirs. Perhaps that’s why they’re not selling?
Figures from the Halifax show house prices across the country have fallen by 11 per cent over a year, yet the same lender’s statistics show the prices of new homes are up 1.1 per cent over 12 months.
No wonder the big builders are reporting a collapse in sales and even bigger collapses in profits. Some big firms go days without selling a property.
But it is not a question of whether new homes have defied gravity – they haven’t – it is whether the builders are trying to fool themselves, fool the market or fool their bankers.
When any other property is sold the owner takes a realistic response to the thin market and either cuts the price to achieve a sale or chooses to continue living there or let it. They do not worry that their cut-price sale reduces the value of all the other houses in the street.
For builders, however, an empty home costs money, so they need a sale. Yet this is not usually their only property: it is part of an estate – some still unbuilt – or one flat in a block. If they cut the price of one unit to win a sale they have set a precedent for selling the others.
That would mean lower prices for further sales and might mean writing down values on not only this site but others too.
That would upset their lenders and shareholders. It would also damage their reputation if, having sold some properties at £250,000 they now sell its neighbour for £200,000. That means unhappy past customers and worries future buyers.
Yet the builders desperately need sales to generate cash. To promote sales they are thus making offers to pay legal bills, stamp duty, mortgage fees and even offer interest free loans on a quarter of the price. Anything except a price cut.
People who have recently bought new homes cannot compete with those offers and would have to take a serious price cut to sell their property. The building industry has created vast oversupply in certain town centres and the fall in value on those is far greater than for the rest of the market. But when a buyer tries to resell, the property no longer counts as a “new home”.
No doubt at some point in the future the builders will cite the figures from the Halifax and others to say that while second-hand homes plunge in price, new homes retain their value!
